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Monday March 19, 2018

Washington News

Three Steps to Comprehensive Tax Reform

Comprehensive tax reform has been underway in the House and Senate for several years. But what steps are required to enact tax reform? Economist Mark Mazur, formerly the Assistant Secretary for Tax Policy at the U.S. Department of Treasury, explained the three steps to tax reform at a recent Washington Conference.

First, legislators must agree there is a problem. Members of the House and Senate recognize the U.S. has the highest corporate tax rate in the industrialized world. During the three decades since the last comprehensive tax reform in 1986, other industrial nations have lowered their corporate tax rates. Generally, the top corporate tax rates for other first world nations are about 15% to 25%, while the U.S. top corporate tax rate remains at 35%.

Both the current White House and the previous administration have recognized that this high tax rate reduces employment in the U.S. It also encourages large corporations to move jobs overseas. Therefore, the first step for both parties is to recognize a problem; that step now has been taken.

Second, there must be available solutions. In 2013, the House Ways and Means Committee and then-Chairman Dave Camp (R-MI) developed a tax reform bill. Their general strategy was to lower corporate and personal income tax rates by reducing or eliminating various credits and deductions. Current House Ways and Means Chairman Kevin Brady (R-TX) and Speaker of the House Paul Ryan (R-WI) have promoted a similar tax plan called "A Better Way." Brady held hearings in May to discuss the principles that could apply to a comprehensive tax reform bill.

Third, a viable coalition needs to support the proposed tax reform plan. In 1986, a Republican President and a Democratic Chairman of the House Ways and Means Committee worked together to pass a bipartisan bill. While the May hearing on tax reform produced bipartisan support for reducing corporate taxes with the goal of increasing employment, there remains great diversity of opinion by members of both parties on the specifics of tax reform.

Editor's Note: Comprehensive tax reform will eventually take place. However, it is becoming steadily more difficult for Chairman Brady to build the needed coalition. There still are significant differences of viewpoint between the White House and members of both parties in the House of Representatives. Given this uncertainty, the schedule for tax reform is steadily slipping to late 2017 or even 2018.